Australia's troubled franchise industry to be put under the microscope

Australia's troubled franchise industry to be put under the microscope

After a string of scandals involving franchisee exploitation and underpayments to workers, Australia's $170 billion franchise sector looks certain to be the target of a Senate inquiry.

New South Wales Nationals Senator John Williams has reportedly confirmed he intends to move a referral to hold a parliamentary inquiry into the franchise sector within the next week and that he says he has the numbers to move ahead with proceedings.

The inquiry will focus on self-regulation within the franchise industry in the wake of allegations of an "exploitative and unsustainable" franchise model operated by listed company Retail Food Group (ASX: RFG). 

Retail Food Group is facing the potential for two separate class actions following a damning report from Fairfax Media which alleged it operated a business model that had sent hundreds of franchisees within its network to the wall financially and that there was widespread underpayment of staff by store owners.

Caltex has also been the subject of allegations of franchisee exploitation and underpayment, while 7-eleven and Domino's have also been the subject of underpayment claims.

Industry veteran and Brumby's bakery co-founder Michael Sherlock (pictured) has weighed in on the debate and called for urgent reforms to the board of the Franchise Council of Australia (FCA).

Sherlock says a lack of leadership from the FCA has been a key factor in the issues confronting franchising, headed by the troubles at ASX-listed Retail Food Group (RFG), and he has suggested several improvements.

"We need to reform the FCA board so it better represents franchising, which is an essential sector of the Australian economy," Sherlock says.

"The membership criteria of the FCA should be amended so that only current established franchisors and franchisees are able to be appointed and serve on the board."

Sherlock says there also needs to be reforms to the FCA's membership structures.

"Franchisees should be encouraged to join with proportionate joining fees," he says.

"Consultants, lawyers and accountants and other professional service providers should have a restricted membership. They should not be eligible to serve on the board and can only attend limited parts of FCA meetings and gatherings.

"The makeup of the board should be structured to encourage the large established systems to have some representation.

"Franchisor members should also have a minimum five years trading and a minimum number of at least 30 franchisees as well as a history of ethical trading.

"Franchisees should also have a similar track record to be eligible to be on the board."
 

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